KADANT INC 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures at year-end 2024. The term "disclosure controls and procedures," as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation of our disclosure controls and procedures at year-end 2024, our Chief Executive Officer and Chief Financial Officer concluded that at year-end 2024, our disclosure controls and procedures were effective at the reasonable assurance level. Management's Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f). Our management assessed the effectiveness of our internal control over financial reporting at year-end 2024. In making this assessment, our management used the criteria set forth in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management believes that at year-end 2024 our internal control over financial reporting was effective based on the criteria issued by COSO. 35 Table of Contents Kadant Inc. Our audited consolidated financial statements include the results of the acquisitions of Key Knife, KWS, and DSTI since their dates of acquisition, including total assets of $315,451,000 and total revenue of $112,858,000 as of and for the fiscal year ended December 28, 2024, but management has excluded these acquisitions from its assessment of the effectiveness of internal control over financial reporting as of December 28, 2024. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our independent registered public accountants, KPMG LLP, have issued an audit report on our internal control over financial reporting, which is included herein on pages F-2 and F-3 and incorporated into this Item 9A by reference. Changes in Internal Control over Financial Reporting There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended December 28, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Insider Trading Arrangements None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fiscal quarter ended December 28, 2024. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers, and Corporate Governance Information about our Directors This information will be included under the heading "Election of Directors" in our 2025 proxy statement and is incorporated in this report by reference, except for the information concerning executive officers, which is included under the heading "Information about our Executive Officers" in Part I, Item 1 of this report. Insider Trading Policies We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers and employees, or the Company itself, that we believe are reasonably designed to promote compliance with insider trading laws, rule and regulations, and any listing standards applicable to us. See Exhibit 19, Insider Trading Policies and Procedures, in the " Exhibit Index " in Part IV of this report. Section 16(a) Beneficial Ownership Reporting Compliance The information required under Item 405 of Regulation S-K will be included under the heading "Stock Ownership–Delinquent Section 16(a) Reports" in our 2025 proxy statement and is incorporated in this report by reference. Corporate Governance The information required under Items 406 and 407 of Regulation S-K will be included under the heading "Corporate Governance" in our 2025 proxy statement and is incorporated in this report by reference. Item 11. Executive Compensation This information will be included under the headings "Executive Compensation," "Corporate Governance - Compensation Committee Interlocks and Insider Participation," and "Compensation Discussion and Analysis" in our 2025 proxy statement and is incorporated in this report by reference. 36 Table of Contents Kadant Inc. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This information will be included under the heading "Stock Ownership" in our 2025 proxy statement and is incorporated in this report by reference. The following table provides information about the securities authorized for issuance under our equity compensation plans at year-end 2024: Equity Compensation Plan Information Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants, and Rights Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) Equity compensation plans approved by security holders 73,718 (a) $ — (b) 335,478 (c) Equity compensation plans not approved by security holders — $ — — Total 73,718 (a) $ — (b) 335,478 (c) (a) Consists of shares of our common stock issuable upon the vesting of restricted stock units and performance-based restricted stock units under the Amended and Restated 2006 Equity Incentive Plan. (b) Shares of restricted stock units and performance-based restricted stock units outstanding on December 28, 2024 had a weighted average grant date fair value of $258.49. (c) Includes an aggregate of 71,905 shares of common stock issuable under our employees' stock purchase plan in connection with current and future offering periods under the plan. Item 13. Certain Relationships and Related Transactions, and Director Independence This information will be included under the heading "Corporate Governance" in our 2025 proxy statement and is incorporated in this report by reference. Item 14. Principal Accountant Fees and Services Our independent registered public accounting firm is KPMG LLP , located in Boston, Massachusetts , auditor firm ID: 185 . The information required by this item will be included under the heading "Independent Registered Public Accounting Firm" in our 2025 proxy statement and is incorporated in this report by reference. PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Consolidated Financial Statements (see Index on Page F-1 of this report): Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flows Consolidated Statement of Stockholders' Equity Notes to Consolidated Financial Statements (2) All schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto. (3) Exhibits filed herewith or incorporated in this report by reference are set forth in the " Exhibit Index " beginning on page 38 . This list of exhibits identifies each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. 37 Table of Contents Kadant Inc. (b) Exhibits Exhibit Number Description of Exhibit 2.1 Securities Purchase Agreement dated as of December 22, 2023, by and among Key Knife, Inc., Key Knife Canadian Investments Corporation, Key Knife, Inc., Employee Stock Ownership Trust, Kadant Inc. and Kadant Canada Corp. ( filed as E xh i bit 2.1 to the Registrant's Annual Report on Form 10-K for the year ended December 30, 2023 [File No. 001-1140 6] and inco rporated in this document by referenc e ) . 3.1 Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 001-11406] and incorporated in this document by reference). 3.2 Amended and Restated By-laws of the Registrant effective November 20, 2014 (filed as Exhibit 3.1 to the Registrant's Form 8-K [File No. 001-11406] filed with the Commission on November 25, 2014 and incorporated in this document by reference). 4.1 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 . 10.1* Form of Indemnification Agreement between the Registrant and its directors and officers (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 [File No. 001-11406] and incorporated in this document by reference). 10.2* Form of Amended and Restated Executive Retention Agreement (change in control agreement) between the Registrant and its named executive officers, as amended and restated on December 9, 2008 (filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 2009 [File No. 001-11406] and incorporated in this document by reference). 10.3* Form of Executive Retention Agreement (change in control agreement) between the Registrant and its executive officers for new agreements entered into from and after November 16, 2016 (filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2016 [File No. 001-11406] and incorporated in this document by reference). 10.4* Employment Agreement between Kadant Johnson Europe B.V. and Fredrik Westerhout dated May 16, 2022 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 2022 [File No. 011-11406] and incorporated in this document by reference). 10.5* Amended and Restated 2006 Equity Incentive Plan of the Registrant effective as of May 15, 2024 (filed as Annex A to the Registrant's Proxy Statement for the Annual Meeting of Stockholders with the Commission on March 27, 2024 [File No. 011-11406] and incorporated in this document by reference). 10.6* Cash Incentive Plan of the Registrant, Amended and Restated as of March 9, 2022 (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K [File No. 001-11406] filed with the Commission on March 15, 2022 and incorporated in this document by reference). 10.7* Summary of non-employee director compensation of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended April 2, 2022 [File No. 001-11406] and incorporated in this document by reference). 10.8* Form of Performance-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No. 011-11406] and incorporated in this document by reference). 10.9* Form of Time-Based Restricted Stock Unit Award Agreement between the Registrant and its executive officers used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No. 011-11406] and incorporated in this document by reference). 10.10* Form of Directors Restricted Stock Unit Award Agreement between the Registrant and its non-employee directors used for restricted stock unit awards on or after March 5, 2014 (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 [File No. 011-11406] and incorporated in this document by reference). 10.11 Amended and Restated Credit Agreement dated as of March 1, 2017, among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K [File No. 001-11406] filed with the Commission on March 7, 2017 and incorporated in this document by reference). 38 Table of Contents Kadant Inc. Exhibit Number Description of Exhibit 10.12 First Amendment and Limited Consent, dated as of May 24, 2017, to the Amended and Restated Credit Agreement dated as of March 1, 2017 by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 1, 2017 [File No. 011-11406] and incorporated in this document by reference). 10.13 Limited Consent, dated as of December 9, 2018, to the Amended and Restated Credit Agreement dated as of March 1, 2017 by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 [File No. 001-11406] and incorporated in this document by reference). 10.14 Second Amendment, dated as of December 14, 2018, to the Amended and Restated Credit Agreement dated as of March 1, 2017 by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year ended December 29, 2018 [File No. 001-11406] and incorporated in this document by reference). 10.15 Third Amendment, dated as of March 16, 2020, to the Amended and Restated Credit Agreement dated as of March 1, 2017 by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 28, 2020 [File No. 001-11406] and incorporated in this document by reference). 10.16 Fourth Amendment, dated as of May 4, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 2021 [File No. 001-11406] and incorporated in this document by reference). 10.17 Joinder Agreement, dated as of May 4, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 2021 [File No. 001-11406] and incorporated in this document by reference). 10.18 Fifth Amendment, dated as of December 9, 2021, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended January 1, 2022 [File No. 001-11406] and incorporated in this document by reference). 10.19 Sixth Amendment, dated as of November 30, 2022, to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2022 [File No. 001-11406] and incorporated in this document by reference). 10.20 Seventh Amendment, dated as of June 24, 2024 , to the Amended and Restated Credit Agreement, dated as of March 1, 2017, by and among the Registrant, the Foreign Subsidiary Borrowers from time to time parties thereto, the several banks and other financial institutions or entities from time to time parties thereto, and Citizens Bank, N.A., as Administrative Agent and Multicurrency Administrative Agent (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10- Q for the q uarter ended June 29, 2024 [File No. 001-11406] and incorporated in this document by reference). 39 Table of Contents Kadant Inc. Exhibit Number Description of Exhibit 10.21 Amended and Restated Guarantee Agreement dated as of March 1, 2017, among the Registrant, as Borrower, and each of the Subsidiary Guarantors, in favor of Citizens Bank, N.A., as Administrative Agent and as Multicurrency Administrative Agent for the bank and other financial institutions or entities from time to time parties to the Amended and Restated Credit Facility (filed as Exhibit 99.2 to the Registrant's Current Report on Form 8-K [File No. 001-11406] filed with the Commission on March 7, 2017 and incorporated in this document by reference). 10.22 Guarantee Agreement dated as of March 1, 2017, by Kadant Cayman Ltd. in favor of Citizens Bank, N.A., as Administrative Agent and as Multicurrency Administrative Agent for the banks and other financial institutions or entities from time to time parties to the Amended and Restated Credit Facility (filed as Exhibit 99.3 to the Registrant's Current Report on Form 8-K [File No. 001-11406] filed with the Commission on March 7, 2017 and incorporated in this document by reference). 10.23 Multi-Currency Note Purchase and Private Shelf Agreement, dated as of December 14, 2018 among the Registrant, PGIM, Inc. and the Purchasers as defined therein (filed as Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 [File No. 001-11406] and incorporated in this document by reference). 19 Insider Trading Policies and Procedures. 21 Subsidiaries of the Registrant. 23 Consent of KPMG LLP, Independent Registered Public Accounting Firm. 24 Power of Attorney (included on the signatures page to the Annual Report on Form 10-K). 31.1 Certification of the Principal Executive Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Principal Financial Officer of the Registrant Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. 32 Certification of the Chief Executive Officer and the Chief Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 Dodd-Frank Compensation Recovery Policy ( adopted May 2023) (filed as Exhibit 97 to the Registrant's Annual Report on Form 10-K for the year ended December 30 , 202 3 [File No. 001-11406] and incorporated in this document by reference). 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Management contract or compensatory plan or arrangement. (1) The schedules to this document have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish copies of any of the schedules to the U.S. Securities and Exchange Commission upon request. Item 16. Form 10-K Summary Not applicable. 40 Table of Contents Kadant Inc. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KADANT INC. Date: February 25, 2025 By: /s/ Jeffrey L. Powell Jeffrey L. Powell Chief Executive Officer and President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey L. Powell, Michael J. McKenney and Deborah S. Selwood, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 25, 2025. Signature Title By: /s/ Jeffrey L. Powell Chief Executive Officer, President and Director Jeffrey L. Powell (Principal Executive Officer) By: /s/ Michael J. McKenney Executive Vice President and Chief Financial Officer Michael J. McKenney (Principal Financial Officer) By: /s/ Deborah S. Selwood Senior Vice President and Chief Accounting Officer Deborah S. Selwood (Principal Accounting Officer) By: /s/ Jonathan W. Painter Director and Chairman of the Board Jonathan W. Painter By: /s/ John M. Albertine Director John M. Albertine By: /s/ Thomas C. Leonard Director Thomas C. Leonard By: /s/ Rebecca Martinez O'Mara Director Rebecca Martinez O'Mara By: /s/ Erin L Russell Director Erin L. Russell 41 Table of Contents Kadant Inc. Annual Report on Form 10-K Index to Consolidated Financial Statements and Schedule The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 8: Page Report of Independent Registered Public Accounting Firm F- 2 Consolidated Balance Sheet as of December 28, 2024 and December 30, 2023 F- 4 Consolidated Statement of Income for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022 F- 5 Consolidated Statement of Comprehensive Income for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022 F- 6 Consolidated Statement of Cash Flows for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022 F- 7 Consolidated Statement of Stockholders' Equity for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022 F- 8 Notes to Consolidated Financial Statements F- 9 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Kadant Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Kadant Inc. and subsidiaries (the Company) as of December 28, 2024 and December 30, 2023, the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the fiscal years in the three-year period ended December 28, 2024, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended December 28, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company acquired Key Knife, Inc. (Key Knife), KWS Manufacturing Company, Ltd. (KWS), and Dynamic Sealing Technologies LLC (DSTI) during 2024, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 28, 2024, Key Knife's, KWS's, and DSTI's internal control over financial reporting associated with total assets of $315,451,000 and total revenues of $112,858,000 included in the consolidated financial statements of the Company as of and for the fiscal year ended December 28, 2024. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Key Knife, KWS, and DSTI. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. F-2 Report of Independent Registered Public Accounting Firm (continued) Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of customer relationships intangible assets acquired in the Key Knife and KWS business combinations As discussed in Note 2 to the consolidated financial statements, the Company acquired Key Knife for $153,386,000 on January 1, 2024, and also acquired KWS for $79,429,000 on January 24, 2024. As of the date of each of the transactions, the Company recognized intangible assets acquired with estimated fair values of $91,620,000 for Key Knife and $29,100,000 for KWS, a portion of which related to customer relationships. The Company determined the fair value of the customer relationships using the multi-period excess earnings methodology. We identified the assessment of the valuation of certain customer relationships intangible assets acquired in the Key Knife and KWS business combinations as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate certain assumptions in the valuation of the customer relationships intangible assets, specifically the future revenue growth rates, gross margins, and discount rates. Additionally, evaluating the discount rates required the involvement of valuation professionals with specialized skills and knowledge. Minor changes in these assumptions could have had a significant impact on the Company’s estimate of fair value of the customer relationships intangible assets. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition date valuation process, including controls related to the development of the future revenue growth rates, gross margins, and discount rate assumptions. We evaluated the future revenue growth rates and gross margins by comparing them to the historical financial results of the acquired businesses. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rates by comparing them to discount rates that were independently developed using publicly available market data for comparable peer companies. /s/ KPMG LLP We have served as the Company’s auditor since 2012. Boston, Massachusetts February 25, 2025 F-3 Table of Contents Kadant Inc. 2024 Financial Statements Consolidated Balance Sheet (In thousands, except share and per share amounts) December 28, 2024 December 30, 2023 Assets Current Assets: Cash and cash equivalents $ 94,660 $ 103,832 Restricted cash 1,286 2,621 Accounts receivable, net of allowances of $ 4,403 and $ 4,090 142,462 133,929 Inventories 146,092 152,677 Contract assets 18,408 8,366 Other current assets 39,418 38,757 Total Current Assets 442,326 440,182 Property, Plant, and Equipment, Net 170,331 140,504 Other Assets 59,025 43,609 Intangible Assets, Net ( Notes 1 and 2 ) 279,494 159,286 Goodwill ( Notes 1 and 2 ) 479,169 392,084 Total Assets $ 1,430,345 $ 1,175,665 Liabilities and Stockholders' Equity Current Liabilities: Current maturities of long-term obligations ( Note 6 ) $ 3,376 $ 3,209 Accounts payable 51,062 42,104 Accrued payroll and employee benefits 43,815 41,855 Accrued warranty and installation costs 10,664 8,154 Customer deposits 35,887 62,641 Advanced billings 7,641 12,194 Other current liabilities 39,120 44,252 Total Current Liabilities 191,565 214,409 Long-Term Obligations ( Note 6 ) 285,151 107,666 Long-Term Deferred Income Taxes ( Note 5 ) 41,850 36,398 Other Long-Term Liabilities 53,651 40,952 Commitments and Contingencies ( Note 7 ) Stockholders' Equity ( Notes 3 and 4 ) : Preferred stock, $ .01 par value, 5,000,000 shares authorized; none issued — — Common stock, $ .01 par value, 150,000,000 shares authorized; 14,624,159 shares issued 146 146 Capital in excess of par value 130,180 124,940 Retained earnings 859,693 763,131 Treasury stock at cost, 2,878,080 and 2,915,978 shares ( 70,524 ) ( 71,453 ) Accumulated other comprehensive items (Note 13) ( 72,368 ) ( 43,062 ) Total Kadant Stockholders' Equity 847,127 773,702 Noncontrolling interests ( Note 2 ) 11,001 2,538 Total Stockholders' Equity 858,128 776,240 Total Liabilities and Stockholders' Equity $ 1,430,345 $ 1,175,665 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents Kadant Inc. 2024 Financial Statements Consolidated Statement of Income (In thousands, except per share amounts) December 28, 2024 December 30, 2023 December 31, 2022 Revenue ( Notes 1 and 1 1 ) $ 1,053,384 $ 957,672 $ 904,739 Costs and Operating Expenses: Cost of revenue 587,236 541,366 515,184 Selling, general, and administrative expenses 279,920 236,264 224,405 Research and development expenses 14,318 13,562 12,724 Gain on sale and other costs, net ( Note 8 ) 658 723 ( 18,856 ) 882,132 791,915 733,457 Operating Income 171,252 165,757 171,282 Interest Income 1,915 1,758 904 Interest Expense ( 20,028 ) ( 8,398 ) ( 6,478 ) Other Expense, Net ( 69 ) ( 101 ) ( 72 ) Income Before Provision for Income Taxes 153,070 159,016 165,636 Provision for Income Taxes ( Note 5 ) 40,516 42,210 43,906 Net Income 112,554 116,806 121,730 Net Income Attributable to Noncontrolling Interest ( 956 ) ( 737 ) ( 802 ) Net Income Attributable to Kadant $ 111,598 $ 116,069 $ 120,928 Earnings per Share Attributable to Kadant ( Note 1 2 ) Basic $ 9.51 $ 9.92 $ 10.38 Diluted $ 9.48 $ 9.90 $ 10.35 Weighted Average Shares ( Note 1 2 ) Basic 11,739 11,700 11,654 Diluted 11,771 11,729 11,688 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents Kadant Inc. 2024 Financial Statements Consolidated Statement of Comprehensive Income (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Net Income $ 112,554 $ 116,806 $ 121,730 Other Comprehensive Items: Foreign currency translation adjustment Foreign currency translation adjustment ( 30,198 ) 11,554 ( 25,522 ) Reclassification adjustment for loss included in net income 658 — — Pension and other post-retirement liability adjustments, net (net of tax of $ 17 , $ 45 , and $ 225 ) 59 137 644 Deferred gain (loss) on cash flow hedges (net of tax of $ 13 , $( 32 ), and $ 147 ) 38 ( 96 ) 520 Other Comprehensive Items ( 29,443 ) 11,595 ( 24,358 ) Comprehensive Income 83,111 128,401 97,372 Comprehensive Income Attributable to Noncontrolling Interests ( 819 ) ( 816 ) ( 672 ) Comprehensive Income Attributable to Kadant $ 82,292 $ 127,585 $ 96,700 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents Kadant Inc. 2024 Financial Statements Consolidated Statement of Cash Flows (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Operating Activities Net income attributable to Kadant $ 111,598 $ 116,069 $ 120,928 Net income attributable to noncontrolling interest 956 737 802 Net income 112,554 116,806 121,730 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,587 33,297 34,936 Stock-based compensation expense 10,639 9,765 8,576 Provision for losses on accounts receivable 721 531 1,165 Gain on sale of assets and other income ( Note 8 ) — ( 841 ) ( 20,190 ) Loss on liquidation of subsidiary ( Note 8 ) 658 — — Non-cash impairment costs (Note 8 ) — 36 731 Deferred income tax provision (benefit) 1,232 ( 1,949 ) 7,159 Other items, net 7,169 4,612 6,658 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable ( 2,833 ) ( 1,694 ) ( 18,515 ) Contract assets ( 6,999 ) 6,450 ( 6,715 ) Inventories 23,951 14,085 ( 36,116 ) Other assets ( 1,088 ) 4,165 ( 1,558 ) Accounts payable 10,577 ( 19,896 ) 1,362 Customer deposits ( 29,751 ) ( 9,011 ) 14,358 Other liabilities ( 21,152 ) 9,189 ( 10,956 ) Net cash provided by operating activities 155,265 165,545 102,625 Investing Activities Acquisitions, net of cash acquired ( Note 2 ) ( 300,335 ) ( 905 ) ( 3,474 ) Purchases of property, plant, and equipment ( 21,005 ) ( 31,850 ) ( 28,199 ) Proceeds from sale of property, plant, and equipment 1,289 1,637 2,111 Other investing activities 914 328 42 Net cash used in investing activities ( 319,137 ) ( 30,790 ) ( 29,520 ) Financing Activities Proceeds from issuance of short- and long-term obligations ( Note 6 ) 305,211 — 22,057 Repayment of short- and long-term obligations ( 124,480 ) ( 93,965 ) ( 85,510 ) Dividends paid ( 14,672 ) ( 13,223 ) ( 12,001 ) Proceeds from issuance of Company common stock 1,605 — 1,376 Tax withholding payments related to stock-based compensation ( 5,881 ) ( 3,915 ) ( 4,607 ) Dividend paid to noncontrolling interest ( 1,346 ) — ( 630 ) Acquisition of subsidiary shares from noncontrolling interest ( Note 2 ) ( 523 ) — — Other financing activities — ( 8 ) ( 1,254 ) Net cash provided by (used in) financing activities 159,914 ( 111,111 ) ( 80,569 ) Exchange Rate Effect on Cash, Cash Equivalents, and Restricted Cash ( 6,549 ) 3,084 ( 6,972 ) (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash ( 10,507 ) 26,728 ( 14,436 ) Cash, Cash Equivalents, and Restricted Cash at Beginning of Year 106,453 79,725 94,161 Cash, Cash Equivalents, and Restricted Cash at End of Year $ 95,946 $ 106,453 $ 79,725 See Note 1 , Nature of Operations and Summary of Significant Accounting Policies, under the heading Supplemental Cash Flow Information for further details. The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents Kadant Inc. 2024 Financial Statements Consolidated Statement of Stockholders' Equity Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Items Noncontrolling Interests Total Stockholders' Equity (In thousands, except share and per share amounts) Common Stock Treasury Stock Shares Amount Shares Amount Balance at January 1, 2022 14,624,159 $ 146 $ 115,888 $ 551,848 3,003,419 $ ( 73,596 ) $ ( 30,350 ) $ 1,680 $ 565,616 Net income — — — 120,928 — — — 802 121,730 Dividends declared – Common Stock, $ 1.04 per share — — — ( 12,132 ) — — — — ( 12,132 ) Dividend paid to noncontrolling interest — — — — — — — ( 630 ) ( 630 ) Activity under stock plans — — 4,036 — ( 53,422 ) 1,309 — — 5,345 Other comprehensive items — — — — — — ( 24,228 ) ( 130 ) ( 24,358 ) Balance at December 31, 2022 14,624,159 $ 146 $ 119,924 $ 660,644 2,949,997 $ ( 72,287 ) $ ( 54,578 ) $ 1,722 $ 655,571 Net income — — — 116,069 — — — 737 116,806 Dividends declared – Common Stock, $ 1.16 per share — — — ( 13,582 ) — — — — ( 13,582 ) Activity under stock plans — — 5,016 — ( 34,019 ) 834 — — 5,850 Other comprehensive items — — — — — — 11,516 79 11,595 Balance at December 30, 2023 14,624,159 $ 146 $ 124,940 $ 763,131 2,915,978 $ ( 71,453 ) $ ( 43,062 ) $ 2,538 $ 776,240 Net income — — — 111,598 — — — 956 112,554 Dividends declared – Common Stock, $ 1.28 per share — — — ( 15,036 ) — — — — ( 15,036 ) Activity under stock plans — — 5,434 — ( 37,898 ) 929 — — 6,363 Noncontrolling interests acquired ( Note 2 ) — — — — — — — 9,319 9,319 Acquisition of subsidiary shares ( N ote 2 ) — — ( 194 ) — — — — ( 329 ) ( 523 ) Dividend paid to noncontrolling interest — — — — — — — ( 1,346 ) ( 1,346 ) Other comprehensive items — — — — — — ( 29,306 ) ( 137 ) ( 29,443 ) Balance at December 28, 2024 14,624,159 $ 146 $ 130,180 $ 859,693 2,878,080 $ ( 70,524 ) $ ( 72,368 ) $ 11,001 $ 858,128 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Kadant Inc. was incorporated in Delaware in November 1991 and trades on the New York Stock Exchange under the ticker symbol "KAI." Kadant Inc. (together with its subsidiaries, the Company) is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing ® . Its products and services play an integral role in enhancing efficiency, optimizing energy utilization, and maximizing productivity in process industries while helping customers advance their sustainability initiatives with products that reduce waste or generate more yield with fewer inputs, particularly fiber, energy, and water. Producing more while consuming less is a core aspect of Sustainable Industrial Processing and a major element of the strategic focus of the Company's three reportable segments consisting of the Flow Control segment, Industrial Processing segment, and Material Handling segment. Principles of Consolidation The accompanying consolidated financial statements of the Company include the accounts of its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Noncontrolling Interests In connection with the Company's January 2024 acquisition of Key Knife, Inc. and certain of its affiliates (collectively, Key Knife), the Company acquired a 45 % interest in two of Key Knife's subsidiaries. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in the subsidiary where the Company holds a noncontrolling interest at any time after December 31, 2027. In May 2024, the Company acquired the remaining shares in one of the two subsidiaries. See Note 2 , Acquisitions, for additional information about the Company's acquisition of Key Knife. In addition, one of the Company's foreign subsidiaries that manufactures fluid-handling products is part of a joint venture agreement with an Italian company in which each holds a 50 % ownership interest. The agreement provides the Company's subsidiary with the option to purchase the remaining 50 % interest in the joint venture. Fiscal Year The Company has adopted a fiscal year ending on the Saturday nearest to December 31. References to 2024, 2023, and 2022 are for the Company's fiscal years ended December 28, 2024 (fiscal 2024), December 30, 2023 (fiscal 2023) and December 31, 2022 (fiscal 2022). Financial Statement Presentation The Company reclassified the prior year accrued warranty and installation costs amount in the accompanying consolidated balance sheet to present it separately to conform with the current year presentation. Use of Estimates and Critical Accounting Policies The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Although the Company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its consolidated financial statements or in the application of accounting policies, if business conditions were different, or if the Company were to use different estimates and assumptions, it is possible that materially different amounts could be reported in the Company's consolidated financial statements. Critical accounting policies are defined as those that entail significant judgments and estimates, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies upon which its financial position depends, and which involve the most complex or subjective decisions or assessments, concern income taxes, revenue recognition, the valuation of goodwill and intangible assets, and inventories. A discussion of the application of these and other accounting policies is included within this note. F-9 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606). Most of the Company’s revenue is recognized at a point in time for each performance obligation under the contract when the customer obtains control of the goods or service. Most of the Company’s parts and consumables products and its capital products with minimal customization are accounted for at a point in time. The Company has made a policy election to not treat the obligation to ship as a separate performance obligation under the contract and, as a result, the associated shipping costs are reflected in cost of revenue when revenue is recognized. The remaining portion of the Company's revenue is recognized over time based on an input method that compares the costs incurred to date to the total expected costs required to satisfy the performance obligation. Contracts are accounted for on an over time basis when they include products which have no alternative use and an enforceable right to payment over time. Most of the contracts recognized on an over time basis are for large capital projects. These projects are highly customized for the customer and, as a result, would include a significant cost to rework in the event of cancellation. The following table presents revenue by revenue recognition method: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Point in Time $ 935,520 $ 849,507 $ 807,966 Over Time 117,864 108,165 96,773 $ 1,053,384 $ 957,672 $ 904,739 The transaction price includes estimated variable consideration where applicable. Such variable consideration relates to certain performance guarantees and rights to return the product. The Company estimates variable consideration as the most likely amount to which it expects to be entitled based on the terms of the contracts with customers and historical experience, where relevant. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation based on the relative stand-alone selling price. The Company disaggregates its revenue from contracts with customers by reportable segment, product type and geography as this best depicts how its revenue is affected by economic factors. The following table presents the disaggregation of revenue by product type and geography: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Revenue by Product Type: Parts and Consumables $ 693,612 $ 598,343 $ 572,988 Capital 359,772 359,329 331,751 $ 1,053,384 $ 957,672 $ 904,739 Revenue by Geography (based on customer location): North America $ 661,016 $ 538,658 $ 508,899 Europe 230,141 245,154 233,790 Asia 101,714 113,511 113,932 Rest of World 60,513 60,349 48,118 $ 1,053,384 $ 957,672 $ 904,739 See Note 11 , Business Segment and Geographical Information, for information on the disaggregation of revenue by reportable segment. The following table presents contract balances from contracts with customers: (In thousands) December 28, 2024 December 30, 2023 Contract Assets $ 18,408 $ 8,366 Contract Liabilities $ 46,062 $ 79,397 Contract assets in the accompanying consolidated balance sheet represent unbilled revenue associated with revenue recognized on contracts accounted for on an over time basis, which will be billed in future periods based on the contract terms. Contract liabilities consist of short- and long-term customer deposits, advanced billings, and deferred revenue. Deferred revenue is included in other current liabilities and long-term customer deposits are included in other F-10 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements long-term liabilities in the accompanying consolidated balance sheet. Contract liabilities will be recognized as revenue in future periods once the revenue recognition criteria are met. The majority of the contract liabilities relate to advance payments on contracts accounted for at a point in time. These advance payments will be recognized as revenue when the Company's performance obligations have been satisfied, which typically occurs when the product has shipped and control of the asset has transferred to the customer. The Company recognized revenue of $ 70,943,000 in 2024 and $ 65,562,000 in 2023 that was included in the contract liabilities balance at the beginning of 2024 and 2023, respectively. The majority of the Company's contracts for capital equipment have an original expected duration of one year or less. Certain capital contracts require longer lead times and could take up to 24 months to complete. For contracts with an original expected duration of over one year, the aggregate amount of the transaction price allocated to the remaining unsatisfied or partially unsatisfied performance obligations as of year-end 2024 was $ 18,959,000 . The Company will recognize revenue for these performance obligations as they are satisfied, approximately 52 % of which is expected to occur within the next twelve months and the remaining 48 % after January 3, 2026. Customers in China will often settle their accounts receivable with banker's acceptance drafts, in which case cash settlement will be delayed until the drafts mature or are settled prior to maturity. For customers outside of China, final payment for the majority of the Company's products is received in the quarter following the product shipment. Certain of the Company's contracts include a longer period before final payment is due, which is typically within one year of final shipment or transfer of control to the customer. The Company includes in revenue amounts invoiced for shipping and handling with the corresponding costs reflected in cost of revenue. Provisions for discounts, warranties, returns and other adjustments are provided for in the period in which the related sale was recorded. Sales taxes, value-added taxes, and certain excise taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue. Accounts Receivable and Allowance for Credit Losses Accounts receivable arise from sales on credit to customers, are recorded at the invoiced amount, and do not bear interest. The Company establishes an allowance for credit losses to reduce accounts receivable to the net amount expected to be collected. The Company exercises judgment in determining its allowance for credit losses, which is based on its historical collection and write-off experience, adjusted for current macroeconomic trends and conditions, credit policies, specific customer collection issues, and accounts receivable aging. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and each customer's current creditworthiness. The Company continuously monitors collections and payments from its customers. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. In some instances, the Company utilizes letters of credit to mitigate its credit exposure. The changes in the allowance for credit losses are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Balance at Beginning of Year $ 4,090 $ 3,595 $ 2,735 Provision charged to expense 721 531 1,165 Accounts written off ( 215 ) ( 89 ) ( 129 ) Currency translation ( 193 ) 53 ( 176 ) Balance at End of Year $ 4,403 $ 4,090 $ 3,595 Banker's Acceptance Drafts Included in Accounts Receivable The Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may sell the drafts at a discount to a third-party financial institution or transfer the drafts to vendors in settlement of current accounts payable prior to the scheduled maturity date. These drafts, which totaled $ 5,299,000 at year-end 2024 and $ 10,826,000 at year-end 2023, are included in accounts receivable in the accompanying consolidated balance sheet until the subsidiary sells the drafts to a bank and receives a discounted amount, transfers the banker's acceptance drafts in settlement of current accounts payable prior to maturity, or obtains cash payment on the scheduled maturity date. F-11 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Warranty Obligations The Company's contracts covering the sale of its products include warranty provisions that provide assurance to its customers that the products will comply with agreed-upon specifications during a defined period of time. The Company provides for the estimated cost of product warranties at the time of sale based on the historical occurrence rates and repair costs, as well as knowledge of any specific warranty problems that indicate projected warranty costs may vary from historical patterns. The Company negotiates the terms regarding warranty coverage and length of warranty depending on the products and applications. While the Company engages in extensive product quality programs and processes, the Company's warranty obligation is affected by product failure rates, repair costs, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to the Company. Should these factors or actual results differ from the Company's estimates, revisions to the estimated warranty liability would be required. The changes in the carrying amount of product warranty obligations are as follows: (In thousands) December 28, 2024 December 30, 2023 Balance at Beginning of Year $ 8,154 $ 7,283 Provision charged to expense 7,575 5,255 Usage ( 4,957 ) ( 4,606 ) Acquisitions 473 — Currency translation ( 581 ) 222 Balance at End of Year $ 10,664 $ 8,154 Leases In accordance with ASC 842, Leases (ASC 842), the Company determines whether an arrangement is, or contains, a lease at inception. Operating lease liabilities are included in other current liabilities and other long-term liabilities and the corresponding right-of-use (ROU) assets are included in other assets in the accompanying consolidated balance sheet. Classification of operating lease liabilities as either current or noncurrent is based on the expected timing of payments due under the Company’s lease obligations. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities with original contract terms greater than 12 months are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Operating leases with an original term of 12 months or less are not recorded in the accompanying consolidated balance sheet. In determining the present value of future lease payments, the Company utilizes either the rate implicit in the lease if that rate is readily determinable or its incremental secured borrowing rate commensurate with the term of the underlying lease. Lease terms may include the effect of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company recognizes operating lease expense for lease payments on a straight-line basis over the lease term. Variable lease costs are not included in fixed lease payments and, as a result, are excluded from the measurement of the ROU assets and lease liabilities. The Company expenses all variable lease costs as incurred. As a lessee, the Company accounts for the lease and non-lease components of its real estate and equipment leases as a single lease component. For vehicle leases, the Company does not combine lease and non-lease components. See Note 9 , Leases, for additional information about the Company's lease obligations. Income Taxes In accordance with ASC 740, Income Taxes (ASC 740), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which these differences are expected to reverse. A tax valuation allowance is established, as needed, to reduce deferred tax assets to the amount expected to be realized. In the period in which it becomes more likely than not that some or all of the deferred tax assets will be realized, the valuation allowance will be adjusted. It is the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At December 28, 2024, the Company believes that it has appropriately accounted for any liability for unrecognized tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, the statute of limitations expires for a tax jurisdiction year, or the Company is required to pay amounts in excess of the liability, its effective tax rate in a given financial statement period may be affected. F-12 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements In December 2021, the Organisation for Economic Co-operation and Development (OECD) released model rules introducing a new 15% global minimum tax for large multinational enterprises with an annual global revenue exceeding 750,000,000 euros (Pillar Two Rules). Since the release of the Pillar Two Rules, the OECD has issued four tranches of administrative guidance, as well as guidance on transitional safe harbor relief. Various countries, including the member states of the European Union, have adopted the Pillar Two Rules into their domestic laws, with certain rules coming into effect for fiscal years beginning in 2024. While the Pillar Two Rules serve as a framework for implementing the minimum tax, countries may enact domestic laws that vary slightly from the Pillar Two Rules and may also adjust domestic tax incentives to align with the Pillar Two Rules on different timelines. For fiscal 2024, the Company qualifies for the transitional safe harbor, which provides temporary relief from the application of the global minimum tax. As a result of meeting the transitional safe harbor criteria, the Company does not anticipate a material impact on its effective tax rate or incremental tax liabilities in the near term. The Company continues to evaluate its eligibility under the safe harbor provisions and monitor evolving regulatory guidance that may affect its long-term tax position. Earnings per Share Basic earnings per share (EPS) is computed by dividing net income attributable to Kadant by the weighted average number of shares outstanding during the year. Diluted EPS is computed using the treasury stock method assuming the effect of all potentially dilutive securities, including restricted stock units (RSUs) and employee stock purchase plan shares. Cash, Cash Equivalents, and Restricted Cash At year-end 2024 and 2023, cash equivalents included investments in money market funds and highly liquid short-term investments, which had maturities of three months or less at the date of purchase. The carrying amounts of cash equivalents approximate their fair values due to the short-term nature of these instruments. The Company's restricted cash generally serves as collateral for bank guarantees associated with providing assurance to customers that the Company will fulfill certain customer obligations entered into in the normal course of business and for certain banker's acceptance drafts issued to vendors. The majority of these restrictions will expire over the next twelve months. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the accompanying consolidated balance sheet that are shown in aggregate in the consolidated statement of cash flows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Cash and cash equivalents $ 94,660 $ 103,832 $ 76,371 Restricted cash 1,286 2,621 3,354 Total Cash, Cash Equivalents, and Restricted Cash $ 95,946 $ 106,453 $ 79,725 Supplemental Cash Flow Information (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Cash Paid for Interest $ 19,699 $ 8,071 $ 6,053 Cash Paid for Income Taxes, Net of Refunds $ 42,291 $ 47,519 $ 36,971 Non-Cash Investing Activities: Fair value of assets acquired $ 360,694 $ 1,338 $ 2,785 Fair value of liabilities assumed (adjusted) $ 36,340 $ 264 $ ( 812 ) Fair value of noncontrolling interest acquired $ 9,319 $ — $ — Fair value of contingent consideration acquired $ 1,785 $ — $ — Purchase of property with outstanding loan receivable $ — $ — $ 1,397 Purchases of property, plant and equipment in accounts payable $ 1,181 $ 4,453 $ 1,040 Non-Cash Financing Activities: Issuance of Company common stock upon vesting of RSUs $ 5,576 $ 5,163 $ 5,555 Dividends declared but unpaid $ 3,762 $ 3,395 $ 3,036 F-13 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Inventories Inventories are stated at the lower of cost (on a first-in, first-out; or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The Company regularly reviews its quantities of inventories on hand and compares these amounts to the historical and forecasted usage of and demand for each particular product or product line. The Company records a charge to cost of revenue for excess and obsolete inventory to reduce the carrying value of inventories to net realizable value. The components of inventories are as follows: (In thousands) December 28, 2024 December 30, 2023 Raw Materials $ 60,750 $ 66,738 Work in Process 27,692 32,147 Finished Goods (includes $ 554 and $ 5,182 at customer locations) 57,650 53,792 $ 146,092 $ 152,677 Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Assets acquired as part of a business combination are initially recorded at fair value. The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line method over the estimated useful lives of the property as follows: buildings, 10 to 40 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. For construction in progress, no provision for depreciation is made until the assets are available and ready for use. Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. Property, plant, and equipment consist of the following: (In thousands) December 28, 2024 December 30, 2023 Land $ 15,884 $ 10,769 Buildings 105,064 92,631 Machinery, Equipment, and Leasehold Improvements 190,615 161,041 Construction in Progress 4,127 8,909 315,690 273,350 Less: Accumulated Depreciation and Amortization 145,359 132,846 $ 170,331 $ 140,504 Depreciation and amortization expense was $ 20,547,000 in 2024, $ 14,849,000 in 2023, and $ 14,429,000 in 2022. See Note 9 , Leases, for further details relating to assets under financing leases included in property, plant and equipment in the accompanying consolidated balance sheet. Intangible Assets, Net Acquired intangible assets by major asset class are as follows: (In thousands) Gross Accumulated Amortization Currency Translation Net December 28, 2024 Definite-Lived Customer relationships $ 334,066 $ ( 127,664 ) $ ( 8,607 ) $ 197,795 Product technology 92,106 ( 49,294 ) ( 3,245 ) 39,567 Tradenames 16,536 ( 5,084 ) ( 481 ) 10,971 Other 25,221 ( 21,280 ) ( 668 ) 3,273 467,929 ( 203,322 ) ( 13,001 ) 251,606 Indefinite-Lived Tradenames 29,059 — ( 1,171 ) 27,888 Acquired Intangible Assets $ 496,988 $ ( 203,322 ) $ ( 14,172 ) $ 279,494 F-14 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements (In thousands) Gross Accumulated Amortization Currency Translation Net December 30, 2023 Definite-Lived Customer relationships $ 218,959 $ ( 108,519 ) $ ( 5,562 ) $ 104,878 Product technology 67,576 ( 43,786 ) ( 2,367 ) 21,423 Tradenames 7,039 ( 4,262 ) ( 388 ) 2,389 Other 20,320 ( 17,715 ) ( 604 ) 2,001 313,894 ( 174,282 ) ( 8,921 ) 130,691 Indefinite-Lived Tradenames 29,059 — ( 464 ) 28,595 Acquired Intangible Assets $ 342,953 $ ( 174,282 ) $ ( 9,385 ) $ 159,286 Intangible assets are recorded at fair value at the date of acquisition. Subsequent impairment charges are reflected as a reduction in the gross balance, as applicable. Definite-lived intangible assets are stated net of accumulated amortization and currency translation in the accompanying consolidated balance sheet. The Company amortizes definite-lived intangible assets over lives that have been determined based on the anticipated cash flow benefits of the intangible asset. Intangible assets acquired related to the Company's acquisitions in 2024 totaled $ 154,023,000 . See Note 2 , Acquisitions, for further details. Definite-lived intangible assets at year-end 2024 have a weighted average amortization period of 14 years. Amortization of definite-lived intangible assets was $ 29,040,000 in 2024, $ 18,448,000 in 2023, and $ 20,507,000 in 2022 and was included in selling, general, and administrative (SG&A) expenses in the accompanying consolidated statement of income. The estimated future amortization expense of definite-lived intangible assets is $ 26,005,000 in 2025; $ 24,901,000 in 2026; $ 24,132,000 in 2027; $ 22,848,000 in 2028; $ 18,548,000 in 2029; and $ 135,172,000 in the aggregate thereafter. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets of the acquired business at the date of acquisition. The Company’s acquisitions have historically been made at prices above the fair value of the acquired net assets, resulting in goodwill, due to the expectation of synergies from combining the businesses. The changes in the carrying amount of goodwill by reportable segment are as follows: (In thousands) Flow Control Industrial Processing Material Handling Total Balance as of December 31, 2022 Gross balance $ 118,309 $ 209,919 $ 142,765 $ 470,993 Accumulated impairment losses — ( 85,538 ) — ( 85,538 ) Net balance 118,309 124,381 142,765 385,455 2023 Activity Acquisition ( Note 2 ) — 793 4 797 Currency translation 2,473 2,020 1,339 5,832 Total 2023 activity 2,473 2,813 1,343 6,629 Balance at December 30, 2023 Gross balance 120,782 212,732 144,108 477,622 Accumulated impairment losses — ( 85,538 ) — ( 85,538 ) Net balance 120,782 127,194 144,108 392,084 2024 Activity Acquisitions (Note 2) 15,384 36,096 48,160 99,640 Measurement period adjustment for 2023 acquisition — ( 22 ) — ( 22 ) Currency translation ( 3,961 ) ( 5,740 ) ( 2,832 ) ( 12,533 ) Total 2024 activity $ 11,423 $ 30,334 $ 45,328 $ 87,085 F-15 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements (In thousands) Flow Control Industrial Processing Material Handling Total Balance at December 28, 2024 Gross balance $ 132,205 $ 243,066 $ 189,436 $ 564,707 Accumulated impairment losses — ( 85,538 ) — ( 85,538 ) Net balance $ 132,205 $ 157,528 $ 189,436 $ 479,169 Impairment of Goodwill and Intangible Assets The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets as of the first day of the fourth quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset might be impaired. Potential impairment indicators include a significant decline in sales, earnings, or cash flows, material adverse changes in the business climate, and a significant decline in the market capitalization due to a sustained decrease in the Company's stock price. The Company is permitted to first assess qualitative factors to determine whether the quantitative impairment test is necessary. If the qualitative assessment (Step 0) results in a determination that the fair value of a reporting unit or indefinite-lived intangible asset is more likely than not less than its carrying amount, the Company performs a quantitative impairment analysis (Step 1). The Company may bypass the qualitative assessment and proceed directly to the quantitative assessment. The Company assesses its definite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets or asset groups. If these projected cash flows were to be less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss would be measured based upon the difference between the carrying amounts of the assets and their fair values calculated using projected discounted cash flows. Goodwill At September 29, 2024 (the first day of the fourth quarter of 2024), the Company performed a qualitative goodwill impairment assessment (Step 0) for each of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the asset was not impaired. The impairment analysis included an assessment of certain qualitative factors including, but not limited to, the results of prior fair value calculations, the movement of the Company's share price and market capitalization, the reporting units' and the Company's overall financial performance, and macroeconomic and industry conditions. The Company considered the qualitative factors and weighed the evidence obtained and determined that it was not more likely than not that the fair value of any of the respective reporting unit's assets was less than its carrying amount. Although the Company believes the factors considered in the impairment analysis are reasonable, significant changes in any one of the assumptions used could have produced a different result. At year-end 2024, no factors were identified that would alter the conclusions of the September 29, 2024 goodwill impairment analysis At October 1, 2023 (the first day of the fourth quarter of 2023), the Company performed a quantitative goodwill impairment analysis (Step 1) for all of its reporting units, which indicated that the fair value of each reporting unit exceeded its carrying value, and determined that the asset was no t impaired. At year-end 2023, no factors were identified that would alter the conclusions of the October 1, 2023 goodwill impairment analysis. Goodwill by reporting unit is as follows: (In thousands) December 28, 2024 December 30, 2023 Fluid-Handling $ 76,733 $ 63,180 Doctoring, Cleaning, & Filtration 55,472 57,602 Fiber Processing 20,956 21,150 Wood Processing 136,572 106,044 Material Handling 189,436 144,108 $ 479,169 $ 392,084 F-16 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Intangible Assets At September 29, 2024, the Company performed a qualitative impairment analysis (Step 0) on its indefinite-lived intangible assets and determined that the assets were not impaired. At year-end 2024, no factors were identified that would alter the conclusions of the September 29, 2024 indefinite-lived intangible asset impairment analysis. At October 1, 2023, the Company performed a quantitative impairment analysis (Step 1) on its indefinite-lived intangible assets and determined that the assets were not impaired. At year-end 2023, no factors were identified that would alter the conclusions of the September 29, 2024 indefinite-lived intangible asset impairment analysis. No triggering events or indicators of impairment were identified in 2024 or 2023 related to the Company's definite-lived intangible assets. Business Combinations The Company's acquisitions have been accounted for using the purchase method of accounting under ASC 805, Business Combinations (ASC 805), and the results of the acquired businesses have been included in its consolidated financial statements from their respective dates of acquisition. The Company accounts for all transactions and events in which it obtains control over a business under ASC 805 by establishing the acquisition date and recognizing the fair value of all assets acquired and liabilities assumed. The Company’s acquisitions have historically been made at prices above the fair value of identifiable net assets, resulting in goodwill, due to synergies expected to be realized by combining the businesses. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase accounting measurement period, which is generally up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. The Company estimates the fair value of intangible assets primarily using the multi-period excess earnings and relief-from-royalty valuation methods, which are based on projections of discounted cash flows or royalty payments avoided that are expected from the identifiable intangible assets of the acquired businesses. The Company's valuation models incorporate significant assumptions, including future revenue growth rates, customer attrition rates, gross and operating margins, discount rates and royalty rates. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determ ined. Acquisition costs are recorded as incurred in SG&A expenses in the accompanying consolidated statement of income and were $ 2,872,000 in 2024, $ 1,442,000 in 2023, and $ 668,000 in 2022. Foreign Currency Translation and Transactions All assets and liabilities of the Company's foreign subsidiaries are translated at fiscal year-end exchange rates, and revenue and expenses are translated at average exchange rates for each quarter in accordance with ASC 830, Foreign Currency Matters . Resulting translation adjustments are reflected in the "accumulated other comprehensive items" (AOCI) component of stockholders' equity (see Note 13 , Accumulated Other Comprehensive Items). Foreign currency transaction gains and losses are included in the accompanying consolidated statement of income and are not material in the three years presented. Stock-Based Compensation The Company recognizes compensation expense for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards. The fair value of RSUs is based on the grant date price of the Company's common stock, reduced by the present value of estimated dividends foregone during the requisite service period. For time-based RSUs, compensation expense is recognized ratably over the requisite service period for the entire award based on the grant date fair value, and net of actual forfeitures recorded when they occur. For performance-based RSUs, compensation expense is recognized ratably over the requisite service period for each separately vesting portion of the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is known. Compensation expense related to any modified stock-based awards is based on the fair value for those awards as of the modification date with any remaining incremental compensation expense recognized ratably over the remaining requisite service period. F-17 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Recent Accounting Pronouncements Segment Reporting - Improving Reportable Segment Disclosures (Topic 280). In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. Under this ASU, a company is required to enhance its segment disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. This ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. This ASU is effective for fiscal year-end 2024 and interim periods beginning in fiscal 2025, and requires retrospective application to all prior periods presented in the financial statements. The Company adopted this ASU during the fourth quarter of 2024, which resulted in additional disclosures. See Note 11 , Business Segment and Geographical Information, for the Company's enhanced segment disclosures. Income Taxes - Improvements to Income Tax Disclosures (Topic 740) . In December 2023, the FASB issued ASU No. 2023-09, to improve income tax disclosure requirements, primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal year-end 2025, with early adoption permitted and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Topic 220). In November 2024, the FASB issued ASU No. 2024-03, to disaggregate operating expense into specific categories to provide enhanced transparency into the nature and function of expenses. This ASU is effective for fiscal year-end 2027 and interim periods beginning in fiscal 2028, with early adoption permitted and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. 2. Acquisitions 2024 Key Knife, Inc. On January 1, 2024, the Company acquired Key Knife pursuant to a securities purchase agreement dated December 22, 2023, for $ 153,386,000 , net of cash acquired and subject to a post-closing adjustment. Key Knife is a global supplier of engineered knife systems for custom chipping, planing, and flaking solutions for wood products industries and is part of the Company's Industrial Processing segment. Goodwill from the Key Knife acquisition was $ 35,894,000 , of which $ 29,158,000 is expected to be deductible for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $ 91,620,000 , of which $ 77,400,000 is expected to be deductible for tax purposes over 15 years. As part of the acquisition, the Company acquired a 45 % interest in two of Key Knife's subsidiaries, increasing its noncontrolling interest liability by $ 9,319,000 based on the income valuation approach. Under a put and purchase option as outlined in the securities purchase agreement, the seller can demand the Company purchase, or the Company can demand that the seller sell to the Company, the remaining interest in these subsidiaries at any time after December 31, 2027. The purchase price would be based on a total enterprise value as defined in the original purchase agreement. See "Other Acquisitions" below for additional information. KWS Manufacturing Company, Ltd. On January 24, 2024, the Company acquired all of the outstanding equity securities of KWS Manufacturing Company, Ltd. (KWS) for $ 79,429,000 . The Company paid $ 79,191,000 and assumed a $ 238,000 bank overdraft. KWS is a leading manufacturer of conveying equipment for the bulk material handling industry and is part of the Company's Material Handling segment. Goodwill from the KWS acquisition was $ 38,418,000 and separately identifiable intangibles assets were $ 29,100,000 , both of which are expected to be fully deductible for tax purposes over 15 years. Dynamic Sealing Technologies LLC On May 31, 2024, the Company acquired all of the outstanding equity securities of Dynamic Sealing Technologies LLC and affiliates (collectively, DSTI) for $ 53,570,000 , net of cash acquired. DSTI is a leading manufacturer of engineered fluid sealing and transfer solutions for rotating applications and is part of the Company's Flow Control segment. Goodwill from the DSTI acquisition was $ 14,946,000 , of which $ 14,161,000 is expected to be deductible F-18 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements for tax purposes over 15 years. In addition, separately identifiable intangible assets acquired were $ 24,380,000 , all of which are expected to be fully deductible for tax purposes over 15 years. Other Acquisitions On May 2, 2024, the Company acquired a service business in Germany, which is included in the Company's Material Handling segment, for $ 3,352,000 , net of cash acquired and subject to a post-closing adjustment. On May 6, 2024, the Company acquired the remaining outstanding shares of a Key Knife subsidiary in which the Company previously held a noncontrolling interest for $ 523,000 in cash. On August 21, 2024, the Company acquired a technology company as part of its Material Handling segment. The total purchase price was approximately $ 11,785,000 , which included cash paid of $ 8,843,000 net of cash acquired, an estimated post-closing adjustment of $ 1,157,000 to be paid within 18 months of closing, and contingent consideration with a fair value of $ 1,785,000 . The contingent consideration is payable upon the achievement of certain revenue performance targets earned between June 30, 2025 and June 30, 2027. The maximum future value of the contingent consideration subject to payment is approximately $ 10,876,000 , calculated using the foreign currency spot rate at December 28, 2024. The valuation of the contingent consideration is dependent on the following assumptions: the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rate. These assumptions were estimated based on a review of historical and projected results. See Note 10 , Fair Value Measurements and Fair Value of Financial Instruments, for additional information related to the fair value of the contingent consideration assumed in the acquisition. In August 2024, the Company acquired certain other assets for a total of $ 1,755,000 in cash. Purchase Price Allocation The following table summarizes the aggregate purchase price and estimated fair values of the net assets and noncontrolling interests acquired related to the 2024 acquisitions: (In thousands) Total Cash and Cash Equivalents $ 11,509 Accounts Receivable 12,382 Inventories 24,649 Other Current Assets 4,936 Property, Plant, and Equipment 37,028 Other Assets 16,527 Definite-Lived Intangible Assets Customer relationships 115,095 Product technology 24,530 Tradenames 9,497 Other 4,901 Goodwill 99,640 Total assets acquired 360,694 Accounts Payable 3,301 Customer Deposits 3,192 Other Current Liabilities 10,212 Long-Term Deferred Income Taxes 5,786 Other Long-Term Liabilities 13,849 Total liabilities assumed 36,340 Noncontrolling interests acquired 9,319 Net assets and noncontrolling interests acquired $ 315,035 F-19 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements (In thousands) Total Purchase Price: Cash Paid $ 311,844 Fair Value of Contingent Consideration (Note 10) 1,785 Estimated Remaining Post-Closing Adjustments, Net 1,406 $ 315,035 The final purchase accounting and purchase price allocations remain subject to change as the Company continues to refine its preliminary valuation of certain acquired assets and liabilities assumed, which may result in adjustments to the assets and liabilities, including goodwill. The Company expects the remaining purchase price adjustments will relate to the valuation of acquired intangibles and deferred income taxes associated with its acquisitions made in the second and third quarters of 2024. Measurement period adjustments made in 2024 were not material to the Company's financial position or results of operations. The weighted-average amortization period for the definite-lived intangible assets related to the 2024 acquisitions is 17 years, including weighted-average amortization periods of 18 years for customer relationships, 12 years for product technology, and 20 years for tradenames. Revenue and operating income for the year ended December 28, 2024 associated with the 2024 acquisitions from their respective acquisition dates are as follows: (In thousands) Total Revenue $ 115,227 Operating Income (a) $ 5,548 (a) Includes amortization expense associated with acquired profit in inventory and backlog of $ 8,441,000 in 2024. Unaudited Supplemental Pro Forma Information The following unaudited pro forma information provides the effect of the Key Knife, KWS and DSTI acquisitions as if had they been completed as of the beginning of 2023: (In thousands, except per share amounts) December 28, 2024 December 30, 2023 Revenue $ 1,064,976 $ 1,093,750 Net Income Attributable to Kadant $ 117,560 $ 106,069 Earnings per Share Attributable to Kadant Basic $ 10.01 $ 9.07 Diluted $ 9.99 $ 9.04 The historical consolidated pro forma financial information of the Company, Key Knife, KWS, and DSTI above has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisitions and related financing arrangements, (ii) expected to have a continuing impact on the Company, and (iii) factually supportable. Pro forma results include the following non-recurring pro forma adjustments: • Pre-tax charge to cost of revenue of $ 5,297,000 in 2023 and reversal of $ 5,141,000 in 2024 for the sale of inventory revalued at the date of acquisition. • Pre-tax charge to SG&A expenses of $ 3,496,000 in 2023 and reversal of $ 2,898,000 in 2024 for intangible asset amortization related to acquired backlog. • Pre-tax charge to SG&A expenses of $ 2,872,000 in 2023 and reversal of $ 2,872,000 in 2024 for acquisition costs. • Estimated tax effects related to the pro forma adjustments. These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that would have resulted had the acquisitions occurred as of the beginning of 2023, or that may result in the future. The Company's pro forma results of operations exclude its other acquisitions in 2024 as the inclusion of those results would not have been materially different from the pro forma results presented above. F-20 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements 2023 On December 19, 2023, the Company acquired a business in Sweden, which is included in the Company's Industrial Processing segment, for approximately $ 895,000 , net of cash acquired. 2022 On November 14, 2022, the Company acquired a business in Canada, which is included in the Company's Material Handling segment, for approximately $ 3,622,000 , net of cash acquired. 3. Employee Benefit Plans Stock-Based Compensation Plans The Company maintains stock-based compensation plans primarily for its key employees and directors, although the plans permit awards to others expected to make significant contributions to the future of the Company. The plans authorize the compensation committee of the Company's board of directors (the board committee) to award a variety of stock and stock-based incentives, such as restricted stock, RSUs, nonqualified and incentive stock options, stock bonus shares, or performance-based shares. The award recipients and the terms of awards granted under these plans are determined by the board committee. Upon a change of control, as defined in the plans, all options or other awards become fully vested and all restrictions lapse. The Company had 263,573 shares available for grant under these stock-based compensation plans at year-end 2024. The Company generally issues its common stock out of treasury stock, to the extent available, for share issuances related to its stock-based compensation plans. The Company recognizes compensation cost for all stock-based awards granted to employees and directors based on the grant date estimate of fair value for those awards. The fair value of RSUs is based on the grant date price of the Company's common stock, reduced by the present value of estimated dividends foregone during the requisite service period. The components of pre-tax stock-based compensation expense included in SG&A expenses in the accompanying consolidated statement of income are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 RSU Awards $ 10,119 $ 9,376 $ 8,222 Employee Stock Purchase Plan Awards 520 389 354 $ 10,639 $ 9,765 $ 8,576 The Company grants RSUs to non-employee directors and certain employees. Holders of RSUs have no voting rights and are not entitled to receive cash dividends. Non-Employee Director Restricted Stock Units The Company granted RSU awards consisting of 606 RSUs in 2024, 868 RSUs in 2023 and 941 RSUs in 2022 to each of its incumbent non-employee directors. Half of the RSUs vested on June 1 of each year and the remaining RSUs vested ratably on the last day of the third and fourth fiscal quarters of each year. In addition, the Company granted RSU awards consisting of 470 RSUs in May 2022, which vested ratably on the last day of the third and fourth fiscal quarters of 2022, to its then new non-employee director. Each RSU issued to the directors represents the right to receive one share of the Company's common stock upon vesting. There were no unvested non-employee director RSUs at December 28, 2024. Performance-Based Restricted Stock Units The Company grants performance-based RSUs to certain officers of the Company. Each performance-based RSU represents the right to receive one share of the Company's common stock upon vesting. The RSUs are subject to adjustment based on the achievement of a performance measure selected for the fiscal year, which historically has been a specified target for adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) generated from operations. Following the adjustment, the RSUs are subject to additional time-based vesting, and vest in three equal annual installments, provided that the officer is employed by the Company on the applicable vesting dates. The Company recognizes compensation expense associated with performance-based RSUs ratably over the requisite service period for each separately vesting portion of the award based on the grant date fair value, net of actual forfeitures recorded when they occur, and remeasured each reporting period until the total number of RSUs to be issued is F-21 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements known. Unrecognized compensation expense related to the unvested performance-based RSUs totaled $ 4,171,000 at year-end 2024, and will be recognized over a weighted average period of 1.4 years. The performance-based RSU agreements provide for forfeiture in certain events, such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events, such as death, disability or a change in control of the Company. If death, disability, or a change in control occurs prior to the end of the performance period, the officer will receive the target RSU amount; otherwise, the officer will receive the number of deliverable RSUs based on the achievement of the performance goal, as stated in the RSU agreements. Time-Based Restricted Stock Units The Company grants time-based RSUs to its officers and other employees of the Company. Each time-based RSU represents the right to receive one share of the Company's common stock upon vesting. The Company recognizes compensation expense associated with these time-based RSUs ratably over the requisite service period for the entire award based on the grant date fair value, and net of actual forfeitures recorded when they occur. The time-based RSU agreement provides for forfeiture in certain events, such as voluntary or involuntary termination of employment, and for acceleration of vesting in certain events, such as death, disability, or a change in control of the Company. Unrecognized compensation expense related to the time-based RSUs totaled $ 4,762,000 at year-end 2024, and will be recognized over a weighted average period of 1.8 years. Vesting of Restricted Stock Units A summary of the activity of the Company's unvested RSUs in 2024 is as follows: (In thousands, except per share amounts) Units Weighted Average Grant- Date Fair Value Unvested RSUs at December 30, 2023 83 $ 192.42 Granted 37 $ 314.33 Vested ( 45 ) $ 200.80 Forfeited ( 1 ) $ 219.88 Unvested RSUs at December 28, 2024 74 $ 258.49 The weighted average grant date fair value of RSUs granted was $ 314.33 in 2024, $ 212.92 in 2023, and $ 170.76 in 2022. The total fair value of shares vested was $ 9,089,000 in 2024, $ 7,834,000 in 2023, and $ 8,337,000 in 2022. Employee Stock Purchase Plan The Company's eligible U.S. employees may elect to participate in its employee stock purchase plan. Under the plan, shares of the Company's common stock may be purchased at a 15 % discount from the fair market value at the beginning or end of the purchase period, whichever is lower. Shares purchased under the plan are subject to a one-year resale restriction and are purchased through payroll deductions of up to 10 % of each participating employee's gross wages. The Company issued 8,818 shares for 2024 (issued in fiscal 2025), 10,627 shares in 2023 (issued in fiscal 2024), and 9,111 shares in 2022 of its common stock under this plan. The Company had 71,905 shares available for grant under the employee stock purchase plan at year-end 2024. 401(k) Savings and Other Defined Contribution Plans The Company's U.S. subsidiaries participate in the Kadant Inc. 401(k) Retirement Savings Plan sponsored by the Company. Contributions to the plan are made by both the employee and the Company and are immediately vested. Company contributions are based upon the level of employee contributions. Certain of the Company's subsidiaries offer other retirement plans, the majority of which are defined contribution plans. Company contributions to these plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $ 6,810,000 in 2024, $ 5,607,000 in 2023, and $ 5,151,000 in 2022. Pension and Other Post-Retirement Defined Benefits Plans The Company sponsors pension and other post-retirement defined benefit plans covering employees at certain U.S. and foreign subsidiaries. F-22 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements In accordance with ASC 715, Compensation-Retirement Benefits , the Company recognizes the funded status of its plans as an asset or liability and changes in the funded status through AOCI, net of tax, in the accompanying consolidated balance sheet. The amounts in AOCI are recognized as net periodic benefit cost pursuant to the Company's accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit cost will be recognized as a component of AOCI, net of tax. The Company records the non-service component of net periodic pension cost in other expense, net in the accompanying consolidated statement of income. The disclosure requirements related to the Company’s defined benefit plans are not material for the fiscal years presented. 4. Stockholders' Equity Preferred Stock The Company's Certificate of Incorporation authorizes up to 5,000,000 shares of preferred stock, $ .01 par value per share, for issuance by the Company's board of directors without further shareholder approval. Common Stock At year-end 2024, the Company had reserved 409,196 unissued shares of its common stock for possible issuance under its stock-based compensation plans. 5. Income Taxes The components of income before provision for income taxes are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Domestic $ 51,417 $ 57,810 $ 46,558 Foreign 101,653 101,206 119,078 $ 153,070 $ 159,016 $ 165,636 The components of the provision for income taxes are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Current Provision: Federal $ 7,051 $ 12,402 $ 8,738 Foreign 29,414 28,587 26,032 State 2,819 3,170 1,977 39,284 44,159 36,747 Deferred Provision (Benefit): Federal 2,094 48 1,970 Foreign ( 1,222 ) ( 2,594 ) 4,233 State 360 597 956 1,232 ( 1,949 ) 7,159 $ 40,516 $ 42,210 $ 43,906 The Company receives a tax deduction upon the vesting of RSUs. The Company recognizes excess income tax benefits and tax deficiencies related to stock-based compensation arrangements as discrete items within the provision for income taxes in the reporting period in which they occur. The Company recognized an income tax benefit of $ 523,000 in 2024, $ 354,000 in 2023 and $ 501,000 in 2022 in the accompanying consolidated statement of income. F-23 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements The provision for income taxes in the accompanying consolidated statement of income differs from the provision calculated by applying the statutory federal income tax rate of 21% to income before provision for income taxes due to the following: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Provision for Income Taxes at Statutory Rate $ 32,145 $ 33,393 $ 34,784 Increases (Decreases) Resulting From: Foreign tax rate differential 7,697 5,070 5,770 State income taxes, net of federal income tax 2,512 2,965 2,316 Nondeductible expenses 1,731 1,730 2,683 U.S. tax (benefit) cost of foreign earnings ( 1,379 ) 1,270 932 (Reversal of) provision for tax benefit reserves, net ( 65 ) 386 ( 1,368 ) Research and development tax credits ( 503 ) ( 520 ) ( 425 ) Excess tax benefit related to stock-based compensation ( 401 ) ( 276 ) ( 377 ) Change in valuation allowance ( 203 ) ( 684 ) 318 Other ( 1,018 ) ( 1,124 ) ( 727 ) $ 40,516 $ 42,210 $ 43,906 The Company's net deferred tax liability consists of the following: (In thousands) December 28, 2024 December 30, 2023 Deferred Tax Asset: Net operating loss carryforwards $ 9,623 $ 11,300 Lease liabilities 9,094 6,820 Inventory basis difference 5,589 5,417 Employee compensation 5,196 4,690 Capitalized research expenses 4,682 4,159 Reserves and accruals 3,125 2,581 Allowance for credit losses 822 776 Foreign, state, and alternative minimum tax credit carryforwards 344 490 Other 153 214 Deferred tax asset, gross 38,628 36,447 Less: valuation allowance ( 7,570 ) ( 7,829 ) Deferred tax asset, net 31,058 28,618 Deferred Tax Liability: Goodwill and intangible assets ( 44,027 ) ( 41,116 ) Fixed asset basis difference ( 13,372 ) ( 11,764 ) ROU assets ( 8,754 ) ( 5,969 ) Provision for unremitted foreign earnings ( 1,135 ) ( 1,153 ) Other ( 2,919 ) ( 2,361 ) Deferred tax liability ( 70,207 ) ( 62,363 ) Net deferred tax liability $ ( 39,149 ) $ ( 33,745 ) Deferred tax assets and liabilities are presented in the accompanying consolidated balance sheet within other assets and long-term deferred income taxes on a net basis by tax jurisdiction. The Company has established valuation allowances related to certain domestic and foreign deferred tax assets on deductible temporary differences, tax losses, and tax credit carryforwards. The valuation allowance at year-end 2024 was $ 7,570,000 , consisting of $ 63,000 in the United States and $ 7,507,000 in foreign jurisdictions. The decrease in the valuation allowance in 2024 of $ 259,000 is related primarily to utilization of net operating losses and fluctuations in foreign currency exchange rates, partially offset by the valuation allowance recorded in purchase accounting. Compliance with ASC 740 requires the Company to periodically evaluate the necessity of establishing or adjusting a valuation allowance for deferred tax assets depending on whether it is more likely than not that a related tax benefit will be realized in future periods. When assessing the need for a valuation F-24 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements allowance in a tax jurisdiction, the Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As part of this evaluation, the Company considers its cumulative three-year history of earnings before income taxes, taxable income in prior carryback years, future reversals of existing taxable temporary differences, prudent and feasible tax planning strategies, and expected future results of operations. As of year-end 2024, the Company maintained a valuation allowance in the United States against a portion of its state net operating loss carryforwards in the United States and a valuation allowance in certain foreign jurisdictions due to the uncertainty of future profitability in the state and those foreign jurisdictions. At year-end 2024, the Company had state net operating loss carryforwards of $ 9,146,000 and foreign net operating loss carryforwards of $ 40,136,000 . The U.S. state net operating loss carryforwards begin to expire in 2025 and a portion does not expire. Of the foreign net operating loss carryforwards, $ 1,244,000 will expire in the years 2025 through 2044, and the remainder do not expire. As of year-end 2024, the Company had foreign tax credits carryforwards of $ 240,000 . The foreign tax credit carryforward begins to expire in 2028. The utilization of this tax attribute is limited to the Company's future taxable income. At year-end 2024, the Company had approximately $ 296,095,000 of unremitted foreign earnings. During 2024, the Company repatriated $ 27,658,000 of previously taxed foreign earnings to the United States and recognized a foreign exchange loss of $ 1,746,000 associated with these earnings. The Company intends to repatriate the distributable reserves of select foreign subsidiaries back to the United States and has recognized $ 584,000 of tax expense on the estimated repatriation amount during 2024. Except for these select foreign subsidiaries, the Company intends to indefinitely reinvest $ 255,324,000 of earnings of its foreign subsidiaries in order to support the current and future capital needs of their operations, including the repayment of the Company’s foreign debt. The related foreign withholding taxes, which would be required if the Company were to remit these foreign earnings to the United States, would be approximately $ 5,311,000 . The Company operates within multiple tax jurisdictions and could be subject to audit in those jurisdictions. Such audits can involve complex income tax issues, which may require an extended period of time to resolve and may cover multiple years. In management's opinion, adequate provisions for income taxes have been made for all years subject to audit. As of year-end 2024, the Company had a liability of $ 14,510,000 for unrecognized tax benefits of which $ 6,032,000 , if recognized, would reduce the effective tax rate. A reconciliation of unrecognized tax benefits is as follows: (In thousands) December 28, 2024 December 30, 2023 Unrecognized Tax Benefits, Beginning of Year $ 11,212 $ 10,354 Gross Increases – Tax Positions in Prior Periods 80 44 Gross Increases – Tax Positions in Prior Periods Arising from Acquisitions (a) 4,372 — Gross Decreases – Tax Positions in Prior Periods ( 25 ) ( 37 ) Gross Increases – Current-Period Tax Positions 931 1,589 Settlements ( 85 ) ( 130 ) Lapses of Statutes of Limitations ( 1,624 ) ( 749 ) Currency Translation ( 351 ) 141 Unrecognized Tax Benefits, End of Year $ 14,510 $ 11,212 (a) Indemnification assets of $ 4,372,000 were also recorded. A portion of the unrecognized tax benefits generated in 2024 is offset by deferred tax assets in the accompanying consolidated balance sheet. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company has accrued $ 3,488,000 at year-end 2024 and $ 2,017,000 at year-end 2023 for the potential payment of interest and penalties. The interest and penalties included in the accompanying consolidated statement of income was an expense of $ 131,000 in 2024 and $ 120,000 in 2023. The Company is currently under audit in certain of its foreign tax jurisdictions. It is reasonably possible that over the next fiscal year the amount of liability for unrecognized tax benefits may be reduced by up to $ 1,135,000 primarily from the expiration of tax statutes of limitations. The Company remains subject to U.S. federal income tax examinations for the tax years 2019 through 2024, and to non-U.S. income tax examinations for the tax years 2015 through 2024. In addition, the Company remains subject to state and local income tax examinations in the United States for the tax years 2003 through 2024. F-25 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements 6. Long-Term Obligations Long-term obligations are as follows: (In thousands) December 28, 2024 December 30, 2023 Revolving Credit Facility, due 2027 $ 278,384 $ 98,761 Senior Promissory Notes, due 2025 to 2028 6,660 8,330 Finance Leases, due 2025 to 2029 2,023 1,789 Other Borrowings, due 2025 to 2028 1,460 1,995 Total 288,527 110,875 Less: Current Maturities of Long-Term Obligations ( 3,376 ) ( 3,209 ) Long-Term Obligations $ 285,151 $ 107,666 See Note 10 , Fair Value Measurements and Fair Value of Financial Instruments, for the fair value information related to the Company's long-term obligations. Revolving Credit Facility On November 30, 2022, the Company entered into a sixth amendment to its unsecured multi-currency revolving credit facility, originally entered into on March 1, 2017 (as amended and restated to date, the Credit Agreement). Among other things, this amendment extended the maturity date to November 30, 2027, and increased the uncommitted, unsecured incremental borrowing facility from $ 150,000,000 to $ 200,000,000 . Pursuant to the Credit Agreement, the Company has a borrowing capacity of $ 400,000,000 and interest on borrowings outstanding accrues and is payable in arrears calculated at one of the following rates selected by the Company: (i) the Base Rate, as defined, plus a margin of 0 % to 1.25 %, or (ii) Eurocurrency Rate, Term SOFR (plus a 10 basis point credit spread adjustment), Term CORRA, and RFR, as applicable and defined, plus a margin of 1.0 % to 2.25 %. The margin is determined based upon the ratio of the Company's total debt, net of unrestricted cash up to $ 50,000,000 , to earnings before interest, taxes, depreciation, and amortization as defined in the Credit Agreement. Additionally, the Credit Agreement requires the payment of a commitment fee payable in arrears on the available borrowing capacity under the Credit Agreement, which ranges from 0.125 % to 0.350 %. Obligations under the Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default under such financing arrangements. In addition, the Credit Agreement contains negative covenants applicable to the Company and its subsidiaries, including financial covenants requiring the Company to maintain a maximum consolidated leverage ratio of 3.75 to 1.00, or, if the Company elects, for the quarter during which a material acquisition occurs and for the three fiscal quarters thereafter, 4.25 to 1.00, and limitations on making certain restricted payments (including dividends and stock repurchases). Loans under the Credit Agreement are guaranteed by certain domestic subsidiaries of the Company. At year-end 2024, the outstanding balance under the Credit Agreement was $ 278,384,000 , which included $ 71,384,000 of euro-denominated borrowin gs . Th e Company had $ 121,760,000 of borrowing capacity available at year-end 2024, which was calculated by translating its foreign-denominated borrowings using the administrative agent's borrowing date foreign exchange rates, in addition to the $ 200,000,000 uncommitted, unsecured incremental borrowing facility. The weighted average interest rate for the outstanding balance under the Credit Agreement was 5.27 % as of year-end 2024 and 5.24 % as of year-end 2023. Senior Promissory Notes In 2018, the Company entered into an uncommitted, unsecured Multi-Currency Note Purchase and Private Shelf Agreement (Note Purchase Agreement). Simultaneously with the execution of the Note Purchase Agreement, the Company issued senior promissory notes (Initial Notes) in an aggregate principal amount of $ 10,000,000 , with a per annum interest rate of 4.90 % payable semiannually, and a maturity date of December 14, 2028. The Company was required to prepay a portion of the principal of the Initial Notes beginning on December 14, 2023 and for each year thereafter, and may optionally prepay the principal on the Initial Notes, together with any prepayment premium, at any time in accordance with the Note Purchase Agreement. The obligations of the Initial Notes may be accelerated upon an event of default as defined in the Note Purchase Agreement, which includes customary events of default under such financing arrangements. The Initial Notes are pari passu with the Company’s indebtedness under the Credit Agreement, and any other senior debt, subject to certain specified exceptions, and participate in a sharing agreement with respect to the obligations of F-26 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements the Company and its subsidiaries under the Credit Agreement. The Initial Notes are guaranteed by certain of the Company's domestic subsidiaries. Debt Compliance At year-end 2024, the Company was in compliance with the covenants related to its debt obligations. Finance Leases The Company's finance leases primarily relate to contracts for vehicles. See Note 9 , Leases, for further information relating to the Company's finance leases. Other Borrowings At year-end 2024, other borrowings included $ 1,460,000 of debt obligations, which have maturity dates ranging from 2026 to 2028 and interest rates of up to 1.70 %. Annual Repayment Requirements The following schedule presents the annual repayment requirements for the Company’s long-term obligations, excluding finance leases, as of year-end 2024. (In thousands) Total 2025 $ 2,301 2026 2,093 2027 280,373 2028 1,737 $ 286,504 7. Commitments and Contingencies Letters of Credit and Bank Guarantees Outstanding letters of credit and bank guarantees issued on behalf of the Company, principally relating to performance obligations and customer deposit guarantees, totaled $ 13,872,000 at year-end 2024. Certain of the Company's contracts require the Company to provide a standby letter of credit or bank guarantee to a customer as beneficiary, limited in amount to a negotiated percentage of the total contract value, in order to guarantee warranty and performance obligations of the Company under the contract. Typically, these standby letters of credit and bank guarantees expire without being drawn by the beneficiary. Right of Recourse In the ordinary course of business, the Company's Chinese subsidiaries may receive banker's acceptance drafts from customers as payment for their trade accounts receivable. The drafts are non-interest-bearing obligations of the issuing bank and generally mature within six months of the origination date. The Company's Chinese subsidiaries may use these banker's acceptance drafts prior to the scheduled maturity date to settle outstanding accounts payable with vendors. Banker's acceptance drafts transferred to vendors are subject to customary right of recourse provisions prior to their scheduled maturity dates. The Company had $ 7,952,000 at year-end 2024 and $ 9,090,000 at year-end 2023 of banker's acceptance drafts subject to recourse, which were transferred to vendors and had not reached their scheduled maturity dates. Historically, the banker's acceptance drafts have settled upon maturity without any claim of recourse against the Company. Contingencies In the ordinary course of business, the Company is, at times, required to issue limited performance guarantees, some of which do not require the issuance of letters of credit to customers in support of these guarantees, relating to its equipment and systems. The Company generally limits its liability under these guarantees to amounts typically capped at 10% or less of the value of the contract. The Company believes that it has adequate reserves for any potential liability in connection with such guarantees. F-27 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements Litigation From time to time, the Company is subject to various claims and legal proceedings covering a range of matters that arise in the ordinary course of business. Such litigation may include, but is not limited to, claims and counterclaims by and against the Company for breach of contract or warranty, canceled contracts, product liability, or bankruptcy-related claims. For legal proceedings in which a loss is probable and estimable, the Company accrues a loss based on the low end of the range of estimated loss when there is no better estimate within the range. If the Company were found to be liable for any of the claims or counterclaims against it, the Company would incur a charge against earnings for amounts in excess of legal accruals. 8. Gain on Sale and Other Costs, Net The components of gain on sale and other costs, net are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Gain on Sale of Assets $ — $ — $ ( 20,190 ) Restructuring and Impairment Costs — 766 1,334 Other Costs (Income) 658 ( 43 ) — $ 658 $ 723 $ ( 18,856 ) Gain on Sale of Assets The Company entered into several agreements with the local government in China to sell its then existing manufacturing building and land use rights at one of its subsidiaries in China for $ 25,159,000 and relocate to a new facility (China Transaction). The agreements became effective in the first quarter of 2022 after a 31 % down payment was received, including 25 % in 2021 and 6 % in the first quarter of 2022, and a land use right in a new location was secured. As a result, the Company recognized a gain on the China Transaction of $ 20,190,000 , or $ 15,143,000 , net of deferred taxes of $ 5,047,000 , in the first quarter of 2022. A receivable of $ 16,082,000 was recognized for the present value of the remaining amount of the sale proceeds, which was due the earlier of when the government sells the property or within two years from the effective date of the agreements. The government settled $ 685,000 of the receivable in 2024. The outstanding receivable was $ 14,377,000 at year-end 2024, which the Company expects will be repaid in full, although the timing is uncertain. The subsidiary, which is part of the Industrial Processing segment, relocated to its new facility during the third quarter of 2023. A summary of the change in the outstanding receivable on the China Transaction, which is included in other current assets in the consolidated balance sheet, is as follows: (In thousands) Total Balance at December 30, 2023 $ 15,410 Accretion of interest income 135 Proceeds received ( 685 ) Currency translation ( 483 ) Balance at December 28, 2024 $ 14,377 Other Costs, Net Restructuring and Impairment Costs The Company's restructuring plans within its Flow Control Segment are as follows: 2023 Restructuring Plans • The Company incurred restructuring and impairment costs of $ 400,000 in 2023 related to the consolidation of a small manufacturing operation into a larger facility in Germany. These charges consisted of severance costs of $ 335,000 for the termination of 10 employees, facility and other closure costs of $ 29,000 , and asset-write downs of $ 36,000 . • The Company incurred restructuring costs of $ 366,000 in 2023 related to the termination of a contract at one of its operations in Germany. F-28 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements 2021 Restructuring Plan • The Company incurred restructuring costs of $ 568,000 in 2022 related to its plan to eliminate a redundant ceramic blade manufacturing operation in France. These charges consisted of severance costs for the termination of five employees and facility and other closure costs. • The Company incurred restructuring costs of $ 35,000 and impairment costs of $ 731,000 within its Industrial Processing segment during 2022. The impairment costs included $ 549,000 primarily related to the write-down of inventory from the Company's operations in Russia and $ 182,000 related to the write-down of certain fixed assets that were not moved to the new manufacturing facility in China as part of the China Transaction. A summary of the changes in accrued restructuring costs included in other current liabilities in the accompanying consolidated balance sheet are as follows: (In thousands) Severance Costs Contract Termination Costs Facility and Other Closure Costs Total 2023 Restructuring Plans Provision $ 335 $ 366 $ 29 $ 730 Usage ( 138 ) ( 63 ) ( 29 ) ( 230 ) Currency translation 4 10 — 14 Balance at December 30, 2023 $ 201 $ 313 $ — $ 514 Usage ( 195 ) ( 303 ) — ( 498 ) Currency translation ( 6 ) ( 10 ) — ( 16 ) Balance at December 28, 2024 $ — $ — $ — $ — 2021 Restructuring Plan Balance at January 1, 2022 $ 156 $ — $ — $ 156 Provision 205 — 398 603 Usage ( 159 ) — ( 231 ) ( 390 ) Currency translation ( 13 ) — 33 20 Balance at December 31, 2022 $ 189 $ — $ 200 $ 389 Usage ( 187 ) — ( 199 ) ( 386 ) Currency translation ( 2 ) — ( 1 ) ( 3 ) Balance at December 30, 2023 $ — $ — $ — $ — Other Costs (Income) In 2024, the Company recognized a loss of $ 658,000 from the recognition of a currency translation adjustment associated with the liquidation of a small foreign subsidiary in the Flow Control segment. In 2023, in connection with the China Transaction, the Company recognized income of $ 841,000 related to the outsourcing of demolition and cleanup of the then existing manufacturing building in China and sale of the remaining fixed assets. In addition, the Company incurred relocation costs of $ 798,000 in 2023 related to the relocation of machinery and equipment and administrative offices to the new manufacturing facility. 9. Leases The Company enters into operating and finance lease commitments primarily for its manufacturing and office space, vehicles, and equipment that expire on various dates over the next 17 years, some of which include assumed options to extend the lease term for up to 10 years. In addition, the Company leases land associated with certain of its buildings in Canada and China under long-term leases expiring in 2032 to 2071. The lease in Canada also includes an assumed option to extend the term for up to 10 years. The components of lease expense are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Operating Lease Cost (a) $ 8,153 $ 6,355 $ 5,870 Short-Term Lease Cost 810 698 697 F-29 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Finance Lease Cost: ROU asset amortization $ 1,168 $ 1,103 $ 1,026 Interest on lease liabilities 100 74 52 Total Finance Lease Cost 1,268 1,177 1,078 Total Lease Costs $ 10,231 $ 8,230 $ 7,645 (a) Includes variable lease costs of $ 747,000 in 2024, $ 961,000 in 2023, and $ 478,000 in 2022. Supplemental cash flow information related to leases is as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Cash Paid for Amounts Included in the Measurement of Lease Liabilities: Operating cash flows from operating leases $ 8,282 $ 6,475 $ 6,159 Operating cash flows from finance leases $ 100 $ 74 $ 51 Financing cash flows from finance leases $ 1,169 $ 1,100 $ 1,002 ROU Assets Obtained in Exchange for Lease Obligations: Operating leases (a) $ 17,496 $ 8,120 $ 4,002 Finance leases $ 1,598 $ 989 $ 1,468 (a) Includes ROU assets of $ 10,847,000 in 2024 obtained in connection with the Company's acquisitions. Supplemental balance sheet information related to leases is as follows: (In thousands) Balance Sheet Line Item December 28, 2024 December 30, 2023 Operating Leases: ROU assets Other assets $ 36,484 $ 25,129 Total operating lease assets $ 36,484 $ 25,129 Short-term liabilities Other current liabilities $ 6,548 $ 5,389 Long-term liabilities Other long-term liabilities 27,768 19,350 Total operating lease liabilities $ 34,316 $ 24,739 Finance Leases: ROU assets, at cost Property, plant, and equipment, at cost $ 4,077 $ 4,037 ROU assets accumulated amortization Accumulated depreciation and amortization ( 2,094 ) ( 2,288 ) ROU assets, net Property, plant, and equipment, net $ 1,983 $ 1,749 Short-term obligations Current maturities of long-term obligations $ 1,075 $ 983 Long-term obligations Long-term obligations 948 806 Total finance lease liabilities $ 2,023 $ 1,789 December 28, 2024 December 30, 2023 Weighted Average Remaining Lease Term (in years): Operating leases 8.0 6.8 Finance leases 2.1 2.0 Weighted Average Discount Rate: Operating leases 4.52 % 4.08 % Finance leases 5.11 % 4.71 % F-30 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements As of December 28, 2024, future lease payments for lease liabilities are as follows: Operating Finance (In thousands) Leases Leases 2025 $ 7,824 $ 1,148 2026 6,775 752 2027 5,527 202 2028 3,842 24 2029 2,831 2 2030 and Thereafter 14,637 — Total Future Lease Payments 41,436 2,128 Less: Imputed Interest ( 7,120 ) ( 105 ) Present Value of Lease Payments $ 34,316 $ 2,023 As of December 28, 2024, the Company had no significant operating and finance leases that had not yet commenced. 10. Fair Value Measurements and Fair Value of Financial Instruments Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy is established, which prioritizes the inputs used in measuring fair value into three broad levels as follows: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. • Level 3—Unobservable inputs based on the Company's own assumptions. The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis: Fair Value as of December 28, 2024 (In thousands) Level 1 Level 2 Level 3 Total Assets: Money market funds and time deposits $ 21,248 $ — $ — $ 21,248 Banker's acceptance drafts (a) $ — $ 5,299 $ — $ 5,299 Liabilities: Forward currency-exchange contracts $ — $ 39 $ — $ 39 Contingent consideration ( Note 2) (b) $ — $ — $ 1,678 $ 1,678 Fair Value as of December 30, 2023 (In thousands) Level 1 Level 2 Level 3 Total Assets: Money market funds and time deposits $ 14,795 $ — $ — $ 14,795 Banker's acceptance drafts (a) $ — $ 10,826 $ — $ 10,826 Forward currency-exchange contracts $ — $ 8 $ — $ 8 Liabilities: Forward currency-exchange contract $ — $ 51 $ — $ 51 (a) Included in accounts receivable in the accompanying consolidated balance sheet. (b) Included in other long-term liabilities in the accompanying consolidated balance sheet. The Company uses the market approach technique to value its Level 1 and Level 2 financial assets and liabilities, and there were no changes in valuation techniques during 2024. Banker's acceptance drafts are carried at face value which F-31 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements approximates their fair value due to the short-term nature of the negotiable instrument. The fair values of the forward currency-exchange contracts are based on quoted forward foreign exchange rates at the reporting date. The forward currency-exchange contracts are hedges of either recorded assets or liabilities or anticipated transactions and represent the estimated amount the Company would receive or pay upon liquidation of the contracts. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the table above. The Company uses the income approach technique to estimate the fair value of its Level 3 contingent consideration, including valuation models that incorporate probability adjusted assumptions and simulations related to the achievement of milestones and the likelihood of making the related payment. The unobservable inputs used in the fair value measurements include the probability of successful achievement of certain revenue targets, forecasted revenue, revenue volatility, and discount rates. Projected contingent consideration related to revenue-based payments are discounted back to the current period using a discounted cash flow model. Changes to the fair value of contingent consideration can result from changes to one or multiple inputs, including the discount rate, projected revenue, revenue volatility, and the assumed probabilities of successful achievement of certain revenue targets. The following table provides a rollforward of the change in the fair value of the contingent consideration as determined by Level 3 inputs: (in thousands) Total Balance Measured at Inception (Note 2) $ 1,785 Currency translation ( 107 ) Balance at December 28, 2024 $ 1,678 The carrying value and fair value of the Company's debt obligations, excluding lease obligations, are as follows: December 28, 2024 December 30, 2023 (In thousands) Carrying Value Fair Value Carrying Value Fair Value Debt Obligations: Revolving credit facility $ 278,384 $ 278,384 $ 98,761 $ 98,761 Senior promissory notes 6,660 6,511 8,330 8,182 Other 1,460 1,460 1,995 1,995 $ 286,504 $ 286,355 $ 109,086 $ 108,938 The carrying value of the revolving credit facility approximates the fair value as the obligation bears variable rates of interest, which adjust frequently, based on prevailing market rates. The fair values of the senior promissory notes are primarily calculated based on quoted market rates plus an applicable margin available to the Company at the respective period ends, which represent Level 2 measurements. 11. Business Segment and Geographical Information The Company is a global supplier of technologies and engineered systems that drive Sustainable Industrial Processing and operates in three reportable segments consisting of its Flow Control segment, Industrial Processing segment, and Material Handling segment. The Company aggregated its operating segments into its reportable segments where they contained similar products and economic characteristics, and shared similar types of customers, and production and distribution methods. The Flow Control segment is comprised of its fluid-handling and its doctoring, cleaning, & filtration operating segments, and the Industrial Processing segment is comprised of its wood processing and its fiber processing operating segments. Each of our reportable segments is led by a segment vice president, who reports directly to the Chief Executive Officer (CEO). The Company has determined that its CEO is its Chief Operating Decision Maker (CODM) who is responsible for assessing performance and allocating resources. The CODM utilizes segment gross profit margin and segment operating income margin to evaluate the performance of each segment and allocate resources effectively. The CODM primarily reviews these profit measures in comparison to forecasts, trends, key performance targets, and results of industry peers to assess profitability, identify areas for improvement, and make strategic decisions regarding investments and resource allocation within each segment. F-32 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements The following is a brief description of the Company's reportable segments: • Flow Control – Custom-engineered products, systems, and technologies that control the flow of fluids used in industrial and commercial applications to keep critical processes running efficiently in the packaging, tissue, food, metals, energy, and other industrial sectors. The Company's primary products include rotary sealing devices, steam systems, expansion joints, doctor systems, roll and fabric cleaning devices, and filtration and fiber recovery systems. • Industrial Processing – Equipment, machinery, and technologies used to recycle paper and paperboard and process timber for use in the packaging, tissue, wood products and alternative fuel industries, among others. The Company's primary products include fiber processing (formerly referred to as stock-preparation) systems and recycling equipment, chemical pulping equipment, debarkers, stranders, and chippers. In addition, the Company provides industrial automation and digitization solutions to process industries. • Material Handling – Products and engineered systems used to handle bulk and discrete materials for secondary processing or transport in the aggregates, mining, food, and waste management industries, among others. The Company's primary products include conveying and vibratory equipment and balers. In addition, the Company manufactures and sells biodegradable, absorbent granules used as carriers in agricultural applications and for oil and grease absorption. The following tables present financial information for the Company's reportable segments: December 28, 2024 (In thousands) Flow Control Industrial Processing Material Handling Total Revenue $ 371,177 $ 432,738 $ 249,469 $ 1,053,384 Cost of revenue 176,340 252,068 158,828 587,236 Gross Profit 194,837 180,670 90,641 466,148 Gross Profit Margin 52.5 % 41.8 % 36.3 % 44.3 % Operating Expenses: Selling expenses 55,326 42,008 24,592 121,926 General and administrative expenses 35,686 33,638 16,668 85,992 Research and development expenses 5,874 6,231 2,213 14,318 Intangible asset amortization expense 5,260 11,094 12,686 29,040 Other segment items (a) 1,079 1,076 409 2,564 Segment Operating Income $ 91,612 $ 86,623 $ 34,073 $ 212,308 Segment Operating Income Margin 24.7 % 20.0 % 13.7 % 20.2 % Corporate Expenses (b) ( 41,056 ) Interest Expense, Net (c) ( 18,113 ) Other Expense, Net (c) ( 69 ) Income Before Provision for Income Taxes $ 153,070 (In thousands) Flow Control Industrial Processing Material Handling Corporate Total Other Segment Disclosures Depreciation expense (d) $ 6,675 $ 9,513 $ 4,310 $ 49 $ 20,547 Segment assets (e) 431,536 569,817 411,178 17,814 1,430,345 Capital expenditures 7,225 8,121 5,638 21 21,005 F-33 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements December 30, 2023 (In thousands) Flow Control Industrial Processing Material Handling Total Revenue $ 363,451 $ 354,703 $ 239,518 $ 957,672 Cost of revenue 175,144 212,247 153,975 541,366 Gross Profit 188,307 142,456 85,543 416,306 Gross Profit Margin 51.8 % 40.2 % 35.7 % 43.5 % Operating Expenses: Selling expenses 51,315 31,660 19,978 102,953 General and administrative expenses 33,625 27,747 13,836 75,208 Research and development expenses 4,865 6,834 1,843 13,542 Intangible asset amortization expense 2,953 6,355 9,140 18,448 Other segment items (a) 300 579 54 933 Segment Operating Income $ 95,249 $ 69,281 $ 40,692 $ 205,222 Segment Operating Income Margin 26.2 % 19.5 % 17.0 % 21.4 % Corporate Expenses (b) ( 39,465 ) Interest Expense, Net (c) ( 6,640 ) Other Expense, Net (c) ( 101 ) Income Before Provision for Income Taxes $ 159,016 (In thousands) Flow Control Industrial Processing Material Handling Corporate Total Other Segment Disclosures Depreciation expense (d) $ 6,094 $ 5,443 $ 3,239 $ 73 $ 14,849 Segment assets (e) 391,719 443,189 326,226 14,531 1,175,665 Capital expenditures (f) 5,920 22,068 3,834 28 31,850 December 31, 2022 (In thousands) Flow Control Industrial Processing Material Handling Total Revenue $ 349,107 $ 353,698 $ 201,934 $ 904,739 Cost of revenue 167,513 215,215 132,456 515,184 Gross Profit 181,594 138,483 69,478 389,555 Gross Profit Margin 52.0 % 39.2 % 34.4 % 43.1 % Operating Expenses: Selling expenses 49,248 28,314 17,890 95,452 General and administrative expenses 33,464 25,950 12,501 71,915 Research and development expenses 4,626 6,268 1,767 12,661 Intangible asset amortization expense 3,450 7,119 9,938 20,507 Gain on sale of asset — ( 20,190 ) — ( 20,190 ) Other segment items (a) 864 1,268 ( 262 ) 1,870 Segment Operating Income $ 89,942 $ 89,754 $ 27,644 $ 207,340 Segment Operating Income Margin 25.8 % 25.4 % 13.7 % 22.9 % Corporate Expenses (b) ( 36,058 ) Interest Expense, Net (c) ( 5,574 ) Other Expense, Net (c) ( 72 ) Income Before Provision for Income Taxes $ 165,636 F-34 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements December 31, 2022 (continued) (In thousands) Flow Control Industrial Processing Material Handling Corporate Total Other Segment Disclosures Depreciation expense (d) $ 5,729 $ 5,456 $ 3,147 $ 97 $ 14,429 Segment assets (e) 386,804 419,095 336,492 7,490 1,149,881 Capital expenditures (f) 4,425 20,137 3,575 62 28,199 (a) Includes restructuring and impairment costs, acquisition costs, net indemnification asset reversals associated with uncertain tax positions, and certain gains and losses. (b) Primarily consists of general and administrative expenses. (c) The Company does not allocate interest expense, net and other expense, net to its segments. (d) Depreciation expense by reportable segment is included within cost of revenue and selling, general and administrative, and research and development expenses. (e) Excludes intercompany receivables or payables and investment in subsidiary balances as the CODM uses total assets excluding these amounts as the measurement for the Company's segment assets. Corporate assets primarily consist of cash and cash equivalents, tax assets, ROU assets, and property, plant, and equipment, net. (f) Included within Industrial Processing are capital expenditures of $ 7,424,000 and $ 10,379,000 in 2023 and 2022, respectively, related to the construction of a new manufacturing facility in China (see Note 8 , Gain on Sale and Other Costs, Net). The following tables present the Company’s revenue and long-lived assets by geographical area: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Geographical Information Revenue (a): United States $ 521,528 $ 448,600 $ 404,835 Canada 114,257 73,183 87,951 China 75,896 81,458 85,500 Germany 43,858 43,036 45,994 Other 297,845 311,395 280,459 $ 1,053,384 $ 957,672 $ 904,739 Long-lived Assets (b): United States $ 82,048 $ 48,394 $ 47,483 China 23,346 24,380 15,834 Germany 19,310 20,953 22,437 Finland 18,114 19,958 8,942 Canada 10,301 9,136 8,344 Other 17,212 17,683 15,815 $ 170,331 140,504 118,855 (a) Revenue is attributed to countries based on customer location. (b) Represents property, plant, and equipment, net. F-35 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements 12. Earnings per Share Basic and diluted EPS were calculated as follows: (In thousands, except per share amounts) December 28, 2024 December 30, 2023 December 31, 2022 Net Income Attributable to Kadant $ 111,598 $ 116,069 $ 120,928 Basic Weighted Average Shares 11,739 11,700 11,654 Effect of Restricted Stock Units and Employee Stock Purchase Plan Shares 32 29 34 Diluted Weighted Average Shares 11,771 11,729 11,688 Basic Earnings per Share $ 9.51 $ 9.92 $ 10.38 Diluted Earnings per Share $ 9.48 $ 9.90 $ 10.35 The effect of outstanding and unvested RSUs of the Company's common stock totaling 15,600 shares in 2024, 17,100 shares in 2023, and 7,500 shares in 2022 was not included in the computation of diluted EPS for the respective periods as the effect would have been antidilutive or, for unvested performance-based RSUs, the performance conditions had not been met as of the end of the reporting periods. 13. Accumulated Other Comprehensive Items Comprehensive income combines net income and other comprehensive items, which represent certain amounts that are reported as components of stockholders' equity in the accompanying consolidated balance sheet. Changes in each component of AOCI, net of tax, are as follows: (In thousands) Foreign Currency Translation Adjustment Pension and Other Post-Retirement Benefit Liability Adjustments Deferred Loss on Cash Flow Hedges Total Balance at December 30, 2023 $ ( 43,013 ) $ ( 11 ) $ ( 38 ) $ ( 43,062 ) Other comprehensive items before reclassifications ( 30,061 ) 51 — ( 30,010 ) Reclassifications from AOCI 658 8 38 704 Net current period other comprehensive items ( 29,403 ) 59 38 ( 29,306 ) Balance at December 28, 2024 $ ( 72,416 ) $ 48 $ — $ ( 72,368 ) Amounts reclassified out of AOCI are as follows: (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Statement of Income Line Item Foreign Currency Translation Cumulative translation adjustment (a) $ ( 658 ) $ — $ — Gain on sale and other costs, net Retirement Benefit Plans Recognized net actuarial loss ( 4 ) ( 9 ) ( 36 ) Other expense, net Amortization of prior service cost ( 8 ) ( 9 ) ( 10 ) Other expense, net Total expense before income taxes ( 12 ) ( 18 ) ( 46 ) Income tax benefit 4 5 12 Provision for income taxes $ ( 8 ) $ ( 13 ) $ ( 34 ) F-36 Table of Contents Kadant Inc. 2024 Financial Statements Notes to Consolidated Financial Statements (In thousands) December 28, 2024 December 30, 2023 December 31, 2022 Statement of Income Line Item Cash Flow Hedges Interest rate swap agreements (b) $ — $ 136 $ ( 208 ) Interest expense Forward currency-exchange contracts ( 50 ) — — SG&A expense Total expense (income) before income taxes ( 50 ) 136 ( 208 ) Income tax benefit (provision) 12 ( 37 ) 50 Provision for income taxes ( 38 ) 99 ( 158 ) Total Reclassifications $ ( 704 ) $ 86 $ ( 192 ) (a) Relates to a loss recognized from a cumulative translation adjustment associated with the liquidation of a small foreign subsidiary within the Flow Control segment. (b) Relates to the Company's unrealized gains (losses) associated with its $ 15,000,000 notional value 2018 interest rate swap agreement used to hedge its exposure to movements in USD LIBOR on its U.S. dollar-denominated debt, which matured on June 30, 2023. F-37